Stock Exchange Competition in a Simple Model of Capital Market Equilibrium

This paper uses a simple model of mean-variance asset pricing with transactions costs to analyze one of the main empirical phenomena in stock market competition in the last years, the decrease of transaction costs. We endogenize transactions costs as variables strategically influenced by stock market integrations as an increase in the correlation of underlying market returns. Among other things we find that market intergration leads to a decrease of transaction costs and to an increase in long-term cross-border trading activity.